1. Technical Field
This invention relates generally to a system and method for transferring credit card balances from one lender to another, and more specifically to a system and method for offering a financial incentive for a particular client to transfer an outstanding balance from a first lender offering the financial incentive to a second lender, thereby reducing a total amount due by a pool of borrowers to a lender.
2. Background Art
Pareto's Principal stands for the proposition that in any business, there are “the vital few and the trivial many.” First established by Italian economist Vilfredo Pareto in 1906 when he postulated that eighty percent of the wealth was owned by twenty percent of the populace, the theory known as the “80/20 rule” is still in use today. Dr. Joseph Juran refined the principle to its present day form in the 1930's, hypothesizing that twenty percent of something is responsible for eighty percent of the results. In business terms, twenty percent of the customers are, theoretically, responsible for eighty percent of the profits.
A company can improve its profitability if it can refine its customer base to eliminate the trivial many while retaining the vital few. While this is an admirable goal in terms of profit recognition and the bottom line, it is often quite difficult in practice. For instance, financial service companies, like lenders offering credit cards to customers for example, generally have a broad customer base. Their customers run the gamut from people who obtain credit cards only for emergencies and never use them, to people who carry balances for long periods of time. The former costs the company money, as monthly statements must be sent and accounts must be maintained, despite a lack of any fee income. The latter is more profitable, as the company makes money not only when the card is used but through financing as well. By far the most unprofitable customers, however, are the ones who run up high balances and then fail to make any payments. The company has not only lent the customer money, but also potentially faces losing that money due to a defaulting borrower.
From a purely profit-based perspective, it would be advantageous if a company could encourage these customers to pay their balances and then to patronize other financial service companies. The company not only recovers at least a portion of the outstanding debt, but is able to better serve customers who pay in accordance with their terms and conditions, as resources formerly dedicated to the unprofitable customers may now be redeployed to serve the profitable ones.
The problem is that once a customer obtains a credit card, it is difficult for the card issuer to close the account. Occasionally a competitor may offer a better interest rate, which will cause a customer to “switch,” but aside from the customer electing to change lenders, there is little a card issuing company can do.
There is thus a need for a system and method for a company, like a financial services company who issues credit cards for example, to encourage unprofitable customers to switch their patronage to other credit providers.
Skilled artisans will appreciate that elements in the figures are illustrated for simplicity and clarity and have not necessarily been drawn to scale. For example, the dimensions of some of the elements in the figures may be exaggerated relative to other elements to help to improve understanding of embodiments of the present invention.